Why Treasury Should Hang Onto Its GM Shares

This morning's Wall Street Journalreports that the Treasury Department is resisting efforts by General Motors to push it out of the auto company. According to the Journal, GM proposed a plan for the Treasury to repurchase 200 million of its 500 million shares, and sell the remaining shares in a public stock offering.

Treasury's biggest objection, according to the Journal, is that it would take a bath if it sells now. At Friday's closing price, the government would lose about $15 billion on its GM stake, based on its current selling price. It's willing to take a modest loss, according to an unnamed Journal source, but not eat the entire investment.

GM is obviously frustrated at the "Government Motors" tag that's adhered to it since it took a $50 billion bailout, and it's understandable that it would like to sail under its own power. But there's a big reason why Treasury should hang onto its GM shares, at least for a while longer.

Treasury was the only entity that could get GM to change. And if Treasury pulls out now, there is no guarantee that GM won't revert to the behavior that sent it looking for a government bailout and into an Obama Administration directed bankruptcy.

To be sure, there has been an enormous amount of structural change at GM, and its culture has begun to change, too. But even CEO Dan Akerson complains that the company isn't moving fast enough, and you don't have to look to deep to find people who still still the world the same way that GM people always have: so certain of the company's dominance in the American car market that they disregard competition from elsewhere.

Without Treasury's presence, even just as a stakeholder, that old GM could come flooding back. Akerson might see himself as a strong leader, and he's certainly emphasized what he wants the company to be. However, his tenure as GM CEO is a blip on its corporate history. Rick Wagoner and Roger Smith barely had their feet wet in the amount of time he's served in the job. There is absolutely way to be certain that any of the change Akerson has directed would be permanent. It's not his fault. History simply is not on his side.

A Treasury fire sale this early also would devalue all the work that the administration's auto task force put into fixing GM. Don't forget that when they took on the restructuring, GM was still resisting the idea that it needed to seek bankruptcy protection. It failed to provide the administration with the kind of thorough reorganization plan that it had requested in order to receive more bailout money, drawing sharp criticism from Obama himself.

Treasury, plus the White House, and a host of restructuring experts, lawyers and bankers, were the ones who largely shaped the GM that emerged from Chapter 11 a little over three years ago. The GM of today isn't a creature of its own making. It had a lot of help to do a job that it couldn't -- or wouldn't -- accomplish on its own. "I was shocked at the stunningly poor management we found, particularly at GM," said Steven Rattner, one of the leaders of the government task force.

Look how many years analysts suggested that GM should get rid of some of its dying brands, like Hummer, Pontiac and Saturn. Despite dwindling market share and mounting costs, it was still clinging to some of them until weeks before its bankruptcy.

The role that the auto task force played in GM's restructuring gives Treasury a bigger stake in GM's future than just the value of its shares. Endless hours of time and effort were involved, and beyond that, there was finally a force greater than GM to make it face reality.

That means Treasury needs to be a presence, even a silent one, until it's clear that GM can chart its own path. And just yet, it isn't clear that GM is able to address a crisis. Look at the crisis at Opel as an example. The Europe division has been in serious trouble for nearly a year now, and yet there still is no detailed turnaround plan, even as the European market worsens.

There's no reason why Treasury needs to lose taxpayers' money just because GM wants it to leave. After all, Treasury knows how GM works on the inside. And if it is taking its time, that's a sign it doesn't think the fledgling is ready to fly on its own.